The downhill journey of the Java sugar economy in the Netherlands Indies (Later Indonesia) from the late 19^th century to the mid-20^th century

Abstract

Java Island was the second largest world cane sugar producer and sugar exporter to the international market next to Cuba for more than four subsequent decades around the turn of the 19th century. The economy of Java had shown a miracle development through high production efficiency and international market supply between 1870 and the 1920s. During this period colonial growth was characterized by liberal and increasingly developmental policies. However, the Java sugar market faced constraints and continued to be checked by crises in which Indonesia actually fell behind the rest of the world economy. Thus, this paper examines how and why the Java sugar industry quickly declined after 1930 from a position of hegemony in the international sugar economy to a purely domestic Indonesian market level. The paper argues that the interplay between international factors and domestic challenges resulted in a significant decline in the Java sugar economy. These factors were the global economic crisis; the Second World War and the Japanese occupation; stiff market competition; the impact of the international sugar agreement; the Indonesian revolution and the post-revolutionary crisis; complemented by policy and institutional problems. This confluence of internal and external causes precipitated the decline of the Java sugar sector and the problem of sustainable sugar production in Indonesia. Within three decades, Java’s prestige and fortune in the global sugar trade were destroyed. Political upheaval following WWII had initially crushed the sugar sector, but after 1968, Indonesia made significant efforts to revitalize it.

Keywords:

• Netherlands Indies
• Indonesian revolution
• international sugar market
• Java sugar economy
• sugar export
• sugar production

Public interest statement

From the turn of the nineteenth century through the second decade of the twentieth century, Java was the world’s second-largest producer of sugar, after only Cuba. The development of the sugar industry and economy in Java was not limited to the cultivation of sugar cane, but also to the development of unique sugar cane types that are disease resistant and enable efficient production. However, the dominance and fame of the Java sugar industry deteriorated after the 1930s due to the interplay of internal and external variables such as world economic crises, massive economic competition, Japanese occupation, World War II, the Indonesian revolution, and post-revolutionary crises. Therefore, this paper argues that a combination of internal and external factors triggered these downward trends, in which the sustainability of Indonesian sugar production in Javanese plantations and Indonesian development policies, combined with external factors, cause a significant decline in the Java sugar economy.

1. Introduction

In the early 17th century, the Chinese were the world’s pioneers in sugar production, employing novel farming and industrial techniques. Thru the efforts of Chinese traders and the emigration of experts, the technology was transported to Southeast Asia (Daniels, 1996). With Batavia on Java being the notable exception, sugarcane was mostly a peasant crop in contrast to a plantation crop like in America. The Dutch encouraged Chinese businesspeople to develop plantations close to Batavia in the 17th and 18th centuries, where they worked with Chinese labour brought from China. Indonesia and Southeast Asia were part of a unique Chinese sugar production zone that produced enough sugar to supply local demand while limiting exports to Japan and even Europe (Galloway, 2005).

Another aspect of Indonesia’s transformation was the strengthening of the colonial state on Java. Batavia began a period of territorial expansion and consolidation in the first part of the nineteenth century, increasing its hold on the neighboring islands. Colonial control was limited to Java, the Moluccas, and a few port cities on Sumatra, Kalimantan, and Sulawesi in 1816, which had all been part of the pre-1800 network established by the private Dutch East India Company, officially termed as Verenigde Oostindische Compagnie (VOC) or the United East India Company which came to control the area from 1602 to 1799. The Dutch colonial conquest continued after the VOC was replaced by the Dutch government. Sumatra was undoubtedly the major “prize” of these “Outer Islands,” as they were termed in colonial parlance, but in successive steps, accelerated after 1870, all islands regarded to be within the sphere of influence of the colonial authority were brought under control (J. L. Van Zanden & Marks, 2012).

In 1830, Johannes van den Bosch, the governor of the Netherlands Indies, developed a new economic method called the Cultivation System which lasted till 1870. The initial aim of this new economic system was to provide the Dutch mother country with more wealth and glory from the Netherlands Indies. It was also believed that it could bring large profits for both growers and manufacturers at contract prices while still leaving the government with a healthy profit margin on the sale of the commodities. As a result, this system was first implemented in Java, then in the other islands of the Netherlands Indies (Money, 1861).

However, the years 1830–1870 were challenging for the Javanese economy since growth was slow, there was no catching up, and total factor productivity even dropped. This fairly poor performance can be attributed to two factors. First, market exchange institutions were underdeveloped. Interest rates were excessively expensive, and the rice market, and the agricultural market, were quite unstable, poorly integrated, and in general not functioning well, leaving peasants with few incentives to expand their marketable output. Furthermore, these relatively inefficient economic institutions were enmeshed in similarly dysfunctional socio-political institutions (Bosma, 2007).

The Cultivation System increased population pressure and shifted resources from subsistence to export production, but the system’s inherent inefficiencies made it unsustainable in the long run. In the 1840s, the colonial administration began to implement changes, which became increasingly extreme in the 1850s and 1860s, eventually toppling the system from within. The dramatically increased export production generated a group of traders and planters who recognized they could grow the same products more effectively, and this group began to campaign for reforms in both Java and the Netherlands. As a result, a new colonial administration arose in the 1870s, with private entrepreneurs, mostly of Dutch origin, running vast plantations and sugar factories, with “free” wage labour and “free” land playing a vital role. To some extent, this was what liberal reformers had hoped for in the early nineteenth century, but it did not come to fruition due to poor agricultural prices, a lack of institutional development, and information problems. Both plantation management knowledge and cash were scarce at the time; both were gradually acquired over the duration of the Cultivation System, which can also be viewed as a learning process (J. L. Van Zanden & Marks, 2012).

Java became Southeast Asia’s largest sugar producer and the world’s second after Cuba. Half of the global sugar trade was controlled by Cuba and Java between 1870 and 1930. The two islands were geographically similar in many ways, which made them particularly well-suited for the development of sugar plantations. They are both fairly big islands with good soils and a semi-tropical climate. Additionally, they were located in areas that had been subsumed into the European sphere of influence since the sixteenth-seventeenth century but had only been lightly utilized until the nineteenth century, when they were both in a position to take the lead in meeting the growing demand for sugar in the industrializing societies of Europe and North America. For more than half a century, Java was the epicentre of sugar cane production, breeding, and distribution. This resulted from a variety of policies and proactive leadership from stakeholders in the sugar industry’s development (Bosma & Curry Machado, 2013; Money, 1861). However, Indonesia went from the second major sugar exporter in the world to a major sugar importer after the global economic crisis (the great depression) as it began a downhill movement. Therefore, this paper examines how and why the Java sugar industry declined so quickly after 1930 from a position of hegemony in the international sugar economy to a purely domestic Indonesian market level.

2. The success of Java in economic transformation and sustainable sugar production

Companies and individuals began to take advantage of the new opportunities that had opened up as a result of the cultivation system’s increase in export output as early as the 1850s and 1860s. The Nederlandse Handel- Maatschappij (NHM) or the Dutch Trading Company, for example, began growing its interest in other “free” cultures as early as 1855. As a result, it found a home for the massive money it had amassed, which was on the verge of becoming idle due to the cultivation system’s progressive decline. In the years 1862–1863, serious financial crises in Java prompted swift responses in the Netherlands. Due to the colony’s severe money constraints, multiple financial institutions were established, each dedicated to productively investing their resources in the colony (J. L. Van Zanden & Marks, 2012; Kymmell, 1992). The liberalization of investment of the 1870s resulted in more investment not bound to the regulations embedded in the cultivation system.

These organizations sought to put their money to work by funding new projects on Java and in the Netherlands Indies’ far reaches. During the same period, new trading firms specializing in trade financing were founded. As a result, portions of the commercial and financial worlds in Amsterdam and Rotterdam were eager to expand their operations in the colony as early as 1870. The decisive turn to liberal colonial politics in the 1860s was largely due to this pressure (Zanden et al., 2004).

After 1870, there was a substantial shift in how the Netherlands exploited its most valuable colony. The services industry, particularly wholesalers, bankers, and shipping companies, had developed relationships with England’s predominantly rural aristocracy. Because industrialization and imperialism in the Netherlands started later than anywhere else in Europe, it was assumed that the internal incentive for aggressive imperialism that led to the accumulation of surplus capital was lacking. They intended to increase London’s status as a central node in international trade and banking, and they employed imperialistic politics as a potent tool for accomplishing this. As a response, commercial businesses and East Indies banks provided finance for export agriculture in 1884. As a result, they founded limited companies that controlled estates and received long-term funding for them on the Dutch capital market; but the sugar crisis of 1884¹ was so devastating. Sugar and other raw material prices had been falling for some years, posing major issues for sugar farmers. Dorrepaal & Co., a huge trading firm involved in no less than 22 sugar refineries and several other plantations, ran into serious financial difficulties and nearly brought the Nederlandsch—Indische Handelsbank (NIHB) and the Koloniale Bank down with it. The NHM survived the crisis relatively unharmed because it had taken timely steps and reduced the amount of long-term financing it extended to plantations. During these years, the trading firm was transitioning into a pure banking institution, a step exacerbated by the East Indies crisis (J. L. Van Zanden & Marks, 2012; Wiseman, 2001).

Despite the mentioned crisis, Java’s economy had grown and transformed miraculously due to its excellent production efficiency. This evolution occurred between 1870 to 1914, it was a period where colonial expansion was marked by liberal and increasingly “developmental” policies. The growth trajectory of Java over this period, however, shows that the favourable benefits were most likely limited to Java (J. L. Van Zanden & Marks, 2012). The economic transformation between 1870 and 1914 was caused by a shift to more market-oriented policies, which aided economic development during that period and was one of the reasons driving the rise in per capita output and total factor productivity. Infrastructure improvements, such as railways and ports between the islands, significantly lowered transportation costs. These reforms resulted in increased foreign trade and the quick integration of Java and parts of the Outer Islands into global markets. These developments benefited the European entrepreneurs more, but Indonesians also increased their proportion in the export of various commodities. As a result, growth was largely export-led, with sugar being the dominating product. Its influence on the home market and Netherlands Indies’ population earnings was limited, and it did not result in the kinds of cumulative processes of structural transformation, urbanization, and industrialization that are at the heart of the modern economic growth process (J. L. Van Zanden, 2002).

In terms of modernizing the cane plantation, Java was the first to introduce newly developed cane types and to implement the central factory system.² The few naturally existing sugarcane kinds had remained resistant to disease only until the second half of the 19th century. The industry’s first response was to cultivate other commonly occurring varieties and develop new ones. In 1888, scientists in Java and Barbados concurrently achieved this. The first of many sugarcane research facilities dispersed throughout the tropical world was the East Java Research Station (Proefstation Oost-Java), a private organization founded by Java sugar companies in Pasoeroean city (East Java), and Dodds Research Station in Saint Philip, owned by Barbados government. Both were very prominent. As a result of their efforts, highly productive and cane disease-resistant, varieties emerged. This resulted in a “revolution of varietal” supplying the sugar industry with a sustainable supply of basic sugar cane plants (Galloway, 2005).

The industry’s location is also notable in comparison to other estate businesses in the Netherlands Indies. Java accounts for around one-third of all estate land in the Netherlands Indies, with 1.8 million hectares. This pattern of sugar cultivation in Java is largely determined by climate as sugar necessitates a distinct dry season. Only in East Java is the dry season clearly defined, with severity generally increasing eastward on the island. East Java included the Residencies of Madiun, Kediri, Malang, Surabaja, and Besuki. These were the most important for sugar production, accounting for 65 percent of estate output in 1954, compared to to 27 percent for Central Java, with the balance coming from Tjirebon (Fryer, 1957).

In 1938, Java had the world’s highest sugar yield per unit area of harvested cane. An average of more than 160 quintals per hectare (6.4 tons per acre) was a tenfold increase in production over a century earlier when the introduction of the culture system marked the birth of the modern industry. The high yields in the Netherlands Indies were achieved through irrigation, extensive fertilizer application, and the utilization of high-yielding cane varieties. The efforts of Dutch plant breeders at the renowned Pasuruan Research Station in developing new varieties with greater disease resistance were critical not only to Java but to the sugar cane industry worldwide. During the war, the international market for Java’s sugar began to fall. Yields did not exceed 100 quintals per hectare harvested before 1953, but there was a significant improvement since then (Fryer, 1957; Knight, 2000).

In general, Java Sugar accounted for over 23% of all export value between 1874 and 1914, making it the greatest commodity on the balance of commerce with rapid progress from year to year in million guilders (see Figure 1). Colonial development advanced significantly between 1900 and 1914. Prices increased practically continuously on the global market. During these years, returns on capital invested in the Netherlands Indies grew more quickly than returns on capital invested in the Netherlands. In the years leading up to World War I, Dutch industrial stocks and banks consistently paid dividends of around 11 percent and high profits were made exclusively by businesses primarily operating in Sumatra and other Outer Islands regions; it was this expansion that gave the colonial economy a fresh, significant impetus (J. L. Van Zanden & Marks, 2012).

Figure 1. Java’s sugar exports from 1874 to 1914 (in million guilders).

Source, Adopted from J. L. Van Zanden and Marks (2012, p. 85)

From 1870 until the 1930s, Java was ranked second in the production and export of sugar in the world, next to Cuba. In 1930, for example, Java’s exports were around 2,222,000 tonnes, whereas total documented global exports (cane and beet) were 12,330,000 tonnes. In the year 1930–31, documented cane sugar production worldwide was 13,969,000 tonnes, with Java accounting for 2,969, 000 tonnes. The antecedents and past rivals of Java sugar in Asia during the nineteenth century did not go through such evolution. Early in the 20th century, Java’s colonial sugar plants were among the most advanced in the world in terms of technology, at a period when the industrialization of the sugar industry in Asia was only getting started. However, several Asian nations like the Philippines and Taiwan were major producers and exporters of sugar during the beginning of the 20th century (Absell, 2022; Knight, 2000). According to Knight (2000), the basis for Java’s leadership over other Asian producers was the acquisition of the best-suited terrain. The plantations of the Java sugar industry occupied significant areas of some of the island’s most productive agricultural territory, where peasant farmers alternated cane cultivation with the cultivation of rice and other supplemental crops.

One of the first regions in the world where sugar manufacturing was modernized was Southeast Asia. Western science, technology, and resources were introduced into the sugar business to modernize it. Through the introduction of central sugar plants and the development of new sugar cane types, the Dutch took the initiative to modernize the region’s sugar sector. As a result, several countries that produce sugar around the world adopted a new, effective kind of Javanese sugar cane (Galloway, 2005).

Sugar, as a result, came to have a critical role in the socio-economic growth of Java beginning in the mid-nineteenth century. The presence of inexpensive labour due to high population density and privileged effective access to rural resources (access to land) combined with the colonial symbiotic relationship between business and the state led to the rapid spread of sugar plantations in Java. Java had moved away radically from previously comparable Asian sugar businesses. For a long time, sugar production was mostly performed in the Caribbean region using slave labour and technological innovation that was unparalleled in Asia. Under the supervision of the cultivation system, production in Java was based on unfettered access to land and labour. Therefore, during the 1830s and 1880s, the agro-political economy of Java struggled to ensure not only output but also the industrialization of production. The early industrialization of manufacturing between the 1830s and 1840s was fuelled by loans provided by the Netherlands Indies Government at small-interest rates to contract manufacturers for sugar cane investment (Knight, 2000).

The development of the sugar business was greatly influenced by the First World War. Between 1914 and 1921, the export sector had boom-and-bust cycles. It increased profits and demand in the Netherlands Indies economy’s export sector. Sugar, for example, became a highly crucial commodity during these years, much like oil. However, the growth in the sugar sector and the Netherlands Indies economy was to come to a quick end in these years due to an exacerbated shortage of shipping capacity as a result of German unrestricted submarine warfare over the maritime routes to an international market. The country’s export economy was particularly vibrant throughout the First World War. International markets were growing, and the Netherlands Indies’ output of sugar and other commodities was at an all-time high. Sugar produced in Sumatra and Kalimantan now dominated the export economy, but Java’s economy was even more dynamic during this period due to the rebirth of peasant agriculture, irrigation, the creation of transportation infrastructure, trade expansion, and the development of government services. The government was increasingly involved in financing and operating railways, as well as developing ports and working to stabilize the rice market. As a result, between 1900 and 1920, government spending grew dramatically. This outstanding success was followed by an economic depression, which resulted in plummeting prices on worldwide markets and other subsequent effects on the Java sugar industry that caused an absolute decline for the sector (Wiseman, 2001).

3. The decline of the Java sugar economy and challenges of sustainable sugar production

The Netherlands Indies has long been a significant producer of sugar as a low-cost producer whose effectiveness made it a formidable rival in the interwar period’s declining “free” market. Although sugar cane is grown in practically every region of the Netherlands Indies, the sector was largely restricted to Java and consumed the majority of the country’s income while producing just approximately one-quarter of the country’s foreign exchange (Fryer, 1957).

The sustainable sugar production of Java was initially challenged by the outbreak of the First World War (1914 –1918) and the outbreak of Influenza in 1918 which caused a temporal shortage of labour in the specific pandemic year³ (Gallardo-Albarrán & de Zwart, 2021; Wiseman, 2001). The market destination for Java sugar had fallen by 1914. Three markets, including the British market, India, and China, were the only ones still in existence. During the decades following the First World War, the global sugar market grew more fragmented and residual. In the 1920s, Java’s entire sugar export was limited to Asian countries due to the absence of a global market. In the 1920s, the worldwide economic crisis caused Java sugar to suffer several difficulties. Although it was no longer the sole heavily industrialized producer of sugar in Asia, in terms of productivity it still outperformed any local rivals like Taiwan and the Philippines. Due to Japan’s extensive sugar production in Taiwan by 1930, East Asian sales had been severely hampered. Java gradually started to withdraw from the global sugar market, but business as usual and manufacturing kept moving forward (Knight, 2000).

Due to the interwar depression on the entire world, industrial sugar production, manufacturing, and marketing were drastically reduced in the early 1930s. The closure of Indonesian sugar companies during the Japanese occupation (1942–1945) and the ensuing national revolution in Indonesia (1945–49) came after that. The turmoil reached its zenith in the late 1950s with the confiscation of Dutch (foreign) capital by the Indonesian Republic or the nationalization of Java’s sugar industries and the post-nationalization complex issues. In the second half of the twentieth century, the sugar sector in Indonesia began to face various unpleasant problems connected to international factors, Indonesian development policies, and the sustainability of Javanese plantations and sugar production. As a result, the country’s sugar production fell, while import volume steadily climbed. For instance, due to the substantial destruction of industries during the turmoil, total Java exports never surpassed the 212,000 tons achieved in 1954. A few sugar mills persisted, but they only produced for the home market and exported the molasses they produced as a by-product. The number of sugar mills dropped dramatically, from one hundred eighty-two in 1910 to barely fifty-five in 1970. Similarly, the total production and export value also declined drastically (see Table 1) (Dick, 1995; Yustika, 2005). Taiwan gradually evolved into a major supplier for Indonesia’s domestic market needs after the mid of the 20th century because of the high domestic market demand for sugar that Indonesian sugar companies were unable to fully meet (Knight, 2000).

Table 1. The Netherlands Indies (Later Indonesia) sugar industry and its performance between 1910–1970

No	Description	1910	1920	1930	1940	1952	1960	1965	1970
1	Number of factories	182	183	179	118	50	55	55	55
2	Production (ton mil.)	1.3	1.5	2.9	1.6	0.5	0.7	0.8	0.7
3	Export (ton mil.)	1.3	1.5	2.8	0.9	-	-	0.1	-
4	Import (ton mil.)	-	-	-	-	-	-	0.1	0.1
5	Area (ha thousands)	126	157	92	92	48	73	87	82
6	Production (ton/ha)	10.2	10.6	17.2	17.2	9.1	8.9	8.8	8.7

Source, Adopted from Yustika (2005, p. 369)

3.1. The global economic crisis (the great depression)

The price of sugar and other basic goods had fallen significantly on the global market. By diversifying agricultural production and lowering the production of the most vulnerable crops, sugar-producing companies such as International managed to adjust to the drop in market price. Most Dutch-owned businesses were challenged by the Japanese trading network and cheap consumer items, which accounted for one-third of all imports. To counterbalance Japanese rivalry and promote Dutch and native enterprise in the Netherlands Indies, the colonial administration abandoned its laissez-faire economic policy in 1933 (Geertrui & van Eeghen, 1937).

The international economic slump had a significant negative impact on the Java sugar sector, which was the foundation of the Netherlands Indies economy. The economic depression years saw a sharp decline in sugar prices on the global market. Almost all key commodity markets saw massive surpluses, including those for oil, which had previously experienced a steadily increasing demand. In international agreements to limit the production of tea and rubber, which were both somewhat more effective than the sugar pact, the Netherlands Indies also took part. The downturn persisted between 1933 and 1936 as a result of monetary policies like the Standard of the Dutch Guilder (J. L. Van Zanden & Marks, 2012). Nederlandsch-Indische Vereeniging Voor de Afzet van Suiker (NIVAS), a state-linked single-seller, was established as the Netherlands Indies Association for Sale of Sugar in the 1930s to assist in ensuring the survival of the Netherlands Indies’ sugar industries. Additionally, it had the authority to decide on the amount of land that might be used to grow cane in a particular year (Knight, 2012). This independent group, which was initially created to provide international markets for sugar exports, also served as the sector’s marketing association until 1959 (Mubyarto, 1969).

During the early 1930s great depression, the sector came dangerously close to collapsing. Acreage decreased from a high of 200,000 acres in 1931 to a low of 30,000 acres in 1935. This came with a reduction in output from around 3 million tons to 500,000 tons. However, by 1937, the sector had sufficiently recovered to produce 1.4 million tons of sugar from 85,700 hectares of sugar plantations. Until the onset of the war, acreage, productivity, and yield continued to improve. By 1945, Java had produced slightly more than it had during the great depression. During this time, the local market for industrial sugar in Java and other Indonesian provinces grew. The effect of the Japanese occupation and the onset of the revolution, however, had set back the Netherlands Indies’ revived sugar sector (Knight, 2000).

3.2. The second world war and Japanese occupation

During the Great Depression, the planted area of estate cane fell drastically from 200,000 hectares in 1931 to 27,600 hectares in 1935. The sugar industry was recovering from the consequences of the archipelago’s terrible economic crisis after WWII and began to run at a good pace of production and efficiency. For example, by 1939, the sugar cane plantation had grown to 94,900 hectares (Fryer, 1957). Prior to the Japanese invasion, 85 of Java’s sugar factories had restarted production, and their total output was slightly more than half a million tons, or 1.7 million tons, of what it had been before the Great Depression (Knight, 2010).

During WWII, Java, the world’s second-largest cane sugar exporter, was destroyed, along with a huge portion of the European beet industry. The situation was ripe for a massive expansion of cane sugar production in the western hemisphere, which lasted until 1953 in most sugar-producing countries in the world. All Dutch sugar estates in Java were taken over by six Japanese firms in November 1942. The Meiji Seito Company gained control of businesses that had temporarily shut down during the great depression. Japanese officials supported textile manufacturing over sugar, converting coffee, rubber, and tea estates around Semarang to the development of foodstuffs or war materials for basic consumer needs. The “Nipponization” (Japan’s nationalization of estates) of the Java sugar sector was completed by the middle of 1943. At the end of the Japanese occupation, the native population’s economic situation was hardly any better than it had been during Dutch colonial control. The Japanese occupation was characterized by Nipponization rather than Indonesianization (Fryer, 1957).

Java had been cut off from her previous markets during the Japanese occupation, and the area planted in sugar drastically decreased. Under Japanese rule, a portion of the estate land was used to grow food for the local population, and the previous crops were uprooted or cut down. Similar to this, routine maintenance tasks including weeding, trimming, fertilizer application, and building and machinery repair went undone. But the period following the war was when the industry suffered the greatest. In the early years of Indonesia’s independence, as part of their scorched-earth campaign against the Dutch, young Indonesians, and the army set many of the mills on fire (Donnithorne, 1954; Mubyarto, 1969).

3.3. Stiff market competition and the international sugar agreement

The sugar sector, which had handled the colony’s most important export product until the early 1930s, was one of the principal victims of the slump. Its position had always been rather precarious, as it faced intense competition from outside, not just in the cane sugar industry of the Caribbean and India, but also in the beet sugar produced in Europe. Major European nations like Germany and France have historically protected this; it was only the Brussels Sugar Convention of 1902 that began a brief era of free trade in the commodity, which spurred a revival of the sector in Indonesia. Nevertheless, this came to an end in 1931 when dropping prices and growing international protection forced the colonial authority to sign on to a global accord to forbid overproduction and divide global markets. Ironically, even the Netherlands, one of the few unrestricted markets to which Javanese sugar could be sold, imposed its import taxes on the commodity in 1930 to safeguard its local agricultural industry (Van de water, 2018).

Due to its dependence on export markets and inability to gain access to new market locations, the Netherlands Indies’ position in the international agreement reached in 1931 was very precarious. For instance, Japan blocked access to Taiwan’s market and started cultivating sugar cane there. India’s largest market also received increased protection. Production had to be decreased as a result, and the colonial administration stepped in to impose this policy, which remained much below the level obtained in the late 1920s (J. L. Van Zanden & Marks, 2012).

By the 1920s, the Netherlands Indies had developed the world’s most advanced sugar industry, both technically and economically. Yet despite this accomplishment, the Dutch government’s power was limited, and it was unable to prevent the industry’s demise beginning in the late 1920s, which was caused by a drop in prices of global sugar and the decline of Asian markets due to the emergence of trade barriers. The Japanese in Taiwan were the closest replicas of Javanese success in Southeast Asia. In 1895, Taiwan was taken over by Japan which turned it into a tropical colony. Taiwan’s sugar industry was modernized by the Japanese. Up to that moment, Taiwan had maintained its position as a major producer of sugar inside China, with over 1,400 small sugar mills dispersed throughout the island (Williams, 1980). In order to make their empire sugar-independent, the Japanese turned Taiwan into a significant global supplier of sugar (Galloway, 2005).

The Java industry had a major reversal of former patterns when compared to the Japanese sugar empire in the late 1920s. Four key forces were at work in this instance. First, in 1927, the collapse of the Suzuki Zaibatsu brought about an empire-wide catastrophe combined with persistent boycotts of Japanese goods, particularly sugar, in nationalist China. Because Suzuki Zaibatsu managed a large Java sugar trade with Japan then, the collapse caused Java sugar to be quickly marginalized in the Japanese market. Similarly, the developing political unrest in China has had an impact on the expanding Java’s sugar market in China and East Asia (Schrikker & Touwen, 2015). The second, and most certainly more important element was the Formosan colony’s emergence as a viable supplier to Japan’s refineries. The third, more hypothetical aspect was the Netherlands Indies and Japan’s prolonged inability to resolve their trade disagreement, which was bound to affect Java sugar’s interests even if it was secondary to the main issues at hand. The fourth change, a significant surge in Java sugar sales, especially unprocessed and refined white sugar, on the China market, appeared to be a reaction to both British and Japanese refineries in Hong Kong, masking the immediate impact of these three moves. Numerous challenges were encountered in the attempts to reintegrate Java into the Japanese sugar empire. This included the closely interwoven colonial producers and urban refiners within the Japanese sugar empire during the inter-war period, as well as the competitive economic ties that developed between the Netherlands Indies and Japan throughout the 1930s. The trade war was centred on the contentious arrival of Japanese manufacturers in the Asian colonies of the United States, the Netherlands, the United Kingdom, and France (Knight, 2010).

The fast development of global sugar output threatened to outstrip market demand. The similar pre-war situation of rising surpluses and the potential of a significant price drop prompted attempts at international control of sugar marketing and the International Sugar Agreement in 1953. The agreement intended but failed to stabilize prices by allocating “free market” quotas to its supplying signatories. As a result, the sugar sector did not manage to be very powerful; yet it refused to sign on to the Agreement. Although significant progress had been achieved, pre-war sugar output had not been restored by 1955. Sugar production remained less than one-third of the 2.9 million tons produced in 1930 (Fryer, 1957).

The majority of pre-war Javan sugar output was earmarked for the export market; domestic consumption was just a little more than 200,000 tons, and per capita spending was one of the lowest in the world, at only 4.5 kg. per year. Unlike most other manufacturers, Java sugar was shipped both refined and unrefined. During the post-war period, the majority of the product was sold to the Asian market, with only a little proportion reaching Europe, but by the 1950s, it had become dependent on the home market. Because of the abundant availability of sugar on the global market, the international sugar council established limits for production countries based on their potential market supply. However, Indonesia rejected the International Sugar Council’s offer of a quota of 150,000 tons and instead wanted a quota of 450,000 tons based on its pre-war export of over one million tons. The Council denied this, and as a result, Indonesia refused to join the International Sugar Agreement (Fryer, 1957; Swerling, 1954).

Before 1966, Indonesia’s sugar was sold by the International Sugar Agreements and was sold for a large premium over domestic prices. Only 3 to 4 percent of the world’s annual supply of sugar flowed to the “free” market or the portion of the market that is not managed by international treaties. More than 95 percent of the total sugar traded globally was sold under some type of contract. In years of prosperity, this “free” market acts as a residual or “dumping” market, while facing an excessive shortage in years of hardship. It is vulnerable to wildly fluctuating pricing, which could affect the prices of sugar exchanged under specific kinds of contractual agreements. Taiwan, the nation most reliant on the “free market,” supplies the majority of Indonesia’s imports, which have always come from this “free” market. In addition to indigenous sugar production, some 40,000 tons were imported for domestic consumption in 1967 (Kerkhof, 2005).

3.4. The Indonesian Revolution, 1945–1949

The revolutionary conflict against the returning Dutch had caused infrastructure damage and uneven sugar production. The majority of sugar estates and facilities were damaged. However, following the war, sugar industries and output were recovered under the continuing Dutch management in the initial years of independence or the beginning of the revolutionary period (Knight, 2000). During the Indonesia—Dutch four-year war, sugar exports from its territory was a vital source of revenue for the country’s faltering economy and the purchase of armaments to continue the war. This transaction has far-reaching international implications. The Dutch navy frequently seized the US and British-owned ships for purportedly exporting sugar from Indonesian ports. In February 1947, the US ship S.S. Martin Behrman was intercepted off the coast of Cirebon (Knight & Brown, 2016).

By the end of 1945, the Indonesian archipelago had been divided in half. Under Sukarno and Hatta, the Outer Islands, some of Java’s bigger towns, where the majority of estates were situated, and the interior parts of Java and Sumatra were all ruled by the Republic of Indonesia. The Japanese managers continued to run the foreign possession in these areas. The Outer Islands and a few of Java’s major cities and some industrial assets were occupied by the Dutch. On 25 March 1947, the Republic and the Dutch came to an agreement known as the Linggadjati agreement. The return of non-Indonesian pre-war rights and foreign property in areas governed by republicans was encouraged under Article 14. However, Linggadjati did not address the issues faced by Dutch firms doing sugar production in Indonesia. This occurred due to opposition from militant labour unions and Indonesian nationalists, illegal encroachments on land holdings known as “squatting” and the Dutch government’s failure to evacuate its troops. To seize control of the most significant oil fields and estate districts in Java and Sumatra, the Dutch launched their first military campaign, Operation Product, in July 1947. Over 1,000 estates and factories were liberated by Dutch soldiers, but many of them were severely damaged or destroyed. The military’s involvement had a more positive effect on Dutch factories, bringing many of them back to life. The Netherlands finally recognized Indonesia’s independence in December 1949 (Kerkhof, 2005).

Even though no war damage compensation was obtained, numerous estate industries and other structures were reconstructed, and some new planting was done, but not considerably. Many of the large estate organizations were able to finance themselves before the war. However, following the war, they rely far more heavily on banks, both due to a shortage of liquid resources and an unwillingness to bring in whatever funds they may have overseas. As a result, the industrial community had less trust in the revolution to operate the sugar sector freely as it had before 1945 (Donnithorne, 1954).

3.5. Post-revolutionary crises

Building a viable “national economy” that would enable Indonesia to be completely independent of its previous colonizer was one of the main challenges facing a sovereign Indonesia. The moderate and radical organizations, however, had opposing viewpoints. The moderates concurred that for Indonesia to advance economically, outside expertise and resources are still needed. This point of view asserted that the state’s duty was to support the still-fragile indigenous business community’s ability to compete with foreign companies. To preserve and replace the colonial economic system, Indonesia lacked the necessary financial and political resources. Radicals in the opposing camp argued that the prevailing “colonial” framework prevented the realization of a completely national economy. This group advocated for the local populace or the Indonesian government to nationalize or expropriate Dutch enterprises (Kerkhof, 2005).

Launched in April 1950, the Benteng (fortress) initiative was an ambitious attempt to overcome the monopoly of big Dutch corporations and stimulate the formation of a local class of entrepreneurs. The initiative was focused on reserving commodity imports for local traders and establishing criteria that these “national importers” had to satisfy in order to get an import license. The number of Indonesian importers, or “newcomers,” increased exponentially as a result of the Benteng plan, rising from 100 in 1950 to over 2,200 by the end of 1954. This program was eventually completed in 1957. Similarity, the government imposed significant limits on Dutch immigration into Indonesia as part of the Indonesianisasi⁴ strategy, to encourage Indonesianisasi among Dutch enterprises. Consequently, the number of Dutch enterprises’ expatriates in Indonesia decreased dramatically between 1952 and 1956. At the same time, the number of indigenous employees and managers hired by Dutch enterprises consistently climbed. This condition hampered firm efficiency and production because most local employees lacked the necessary skills and expertise in the sugar sector (Sutter, 1959). For Dutch enterprises, this situation resulted in an economic slowdown and difficulties. Following this, the majority of the sugar firms began to shift their investments to new countries, mainly in Europe, Africa, and the United States. For instance, one of the biggest sugar trade company, Internatio, changed its focus to Europe and the United States in the early 1950s; in 1954, Handelsvereniging Amsterdam (HVA) shifted its focus to Africa, more specifically Ethiopia. By the end of 1956, the situation in Indonesia was out of hand. The Outer Islands’ resentment of Java’s governmental hegemony and economic “exploitation” was at the heart of the dispute (Kerkhof, 2005; Stoler, 1998).

Finally, Indonesia nationalized the Dutch firms, as well as other privately-owned businesses, in early 1958. All western enterprises in Indonesia were confiscated between 1964 and 1965. Although the nationalization of Dutch companies momentarily reduced Indonesian worry, it did nothing to address the economy’s lack of capital and skill; after 1958, per capita income continued to decline (Glassburner, 1971).

In the 1950s, the Indonesian government made an effort to tackle the Dutch commercial circles in Indonesia, thus they increased smallholder output for industries. It also sponsored the construction of two mills, Krebet Baru and Jombang Baru, to produce sugar entirely from smallholders. The government agencies became the principal providers of credit for smallholder enterprises. East Java’s Madiun Residency, neighbouring Kediri, and the Malang region of Pasuruan contributed about two-thirds of all smallholder cane grown for modern sugar plant processing in the 1950s. These were associated with smallholder cane farming, the majority of which was used to manufacture brown “farmers” sugar” (Knight & Brown, 2016).

The second half of the 1950s saw the milling of peasants’ cane from smallholder sources account for around 25 percent or more of the factory-produced sugar in Java, which peaked in 1956 at over 30 percent, up from less than 6 percent four years earlier. Smallholders’ cane produced 50–60 percent less manufactured sugar per hectare than cane grown on factory lots that were rented out, in terms of productivity (see Figure 2). The main factor contributing to this difference was likely the fact that the smallholders’ fields designated for cane farming were not likely to be prime agricultural land because the best land was probably better suited for planting rice and other food crops. To compete with factory output, smallholders accelerated the creation of brown sugar, or “farmers” sugar” called Gula Jawa. As a result, quality standards had deteriorated, and yields were insufficient to compete on the world market with other sugar-producing countries (Knight & Brown, 2016).

Figure 2. Cane supplied to java factories by smallholders from 1952 to 1958 (in percentage).

Source (Knight & Brown, 2016), p.96

3.6. Policy and Institutional Problems

The Dutch colonists’ introduction of the cultivation system, which was so effective that it became the foundation of the Netherlands’ prosperity, revolutionized the significance of sugar in the Netherlands Indies around 1830. The primary component of the cultivation system was the requirement that land, and labour be provided by farmers to grow export crops. The colonialists and their workers made decisions on production. The Dutch parliament passed the agrarian act and the sugar act in 1870, which both outlawed the cultivation of sugar. Long-term land contracts to produce export-oriented crops were made common practice by the agrarian act. These modifications gave rise to the glebagan system. In this system, farmers who lived close to a sugar mill had to lease the mill their property. Production of sugar has steadily decreased because of this approach. Due to the increased demand and profitability of food crops compared to sugar cane under conditions of rapid population growth and limited access to arable land. As a result, farmers became less interested in making cane sugar in the years to come (Wasino & Nawiyanto, 2017).

Despite the fact that the glebagan system was still in place after the war, sugar mills encountered difficulties carrying on the pre-war method for controlling cane production on land leased from smallholders because they had to expand food production, particularly rice, in the wake of independence. Mills started relying on independently cultivated smallholders’ cane to ensure an adequate supply of the crop. Smallholders achieved a significant position as sugar cane providers for the first time. For more than eighty years, this system had been in place unchanged. Beginning in 1952, several legislative changes were made to address some of the injustices brought on by the colonial agrarian law’s provisions for long-term leases. A key component of the glebagan system, the obligatory leasing of land to mills, was abolished in February 1975 when the government issued Presidential Instruction No. 9. To encourage farmers to handle sugar production on their properties rather than in mills, a new law was put in effect. The Smallholder Cane Intensification Program, often known as TRI in Indonesia, was introduced and included both credits and inputs. Rather than renting land to the mills, farmers were required to continuously cultivate cane to ensure a sufficient supply for the mills (Nelson & Panggabean, 1991).

The sugar business in Indonesia faced a variety of intricate issues, both internal and foreign. The inefficiency of sugar production and marketing in the sugar industry was generally caused by four major issues, viz., farmers, mills, government policy, and trade level. There was a link between farmer inefficiency and the ratoon planting pattern system, which was used up to 15 times because farmers could not afford to buy expensive seeds for each planting season. After the rent sugar cane system was banned and sugar cane was planted on dry land, ratoon sugar cane plants grew significantly. Inefficient input use and shifting land uses are the key drivers of declining production (from wetland to dry land). The cut-load carry method appeared to be ineffective due to a lack of cooperation between sugar cane farmers and the sugar mill. Sugar cane that had to be cut down was rejected because the sugar mill could not process it (Sukarso, 1999; Yustika, 2005).

While the sugar mills were too old and equipped with the usual management system, the result was not optimal, and it resulted in low efficiency. These mills and management systems were not brought up to date in a timely manner. Although privately held sugar mills were more efficient than government-owned mills. Since most of the private mills were recently established, they had better technology and a more expert management system. Regarding the government policy during the pre-nationalization period, the government had a gloomy perspective toward Dutch-owned enterprises which hindered the active engagement and sustainability of firms in Indonesia. Even the government took no proactive steps to renew the lease and contract for those who had completed it. Especially following the nationalization process, the government failed to properly encourage the growth of the domestic sugar industry. This was demonstrated by the policy’s poor implementation trend, such as the extraordinarily slow delivery of credits to farmers and the lack of enhancing the performance of sugar mills (Yustika, 2005).

Sugar mill performance suffered as a result of poor management and technology. In 1963, Java had 55 mills, 48 of which were operated and owned by the government and PN Gula. Seven of them were regional or private governments and weren’t fully under central control. The government, or PN Gula (Perusahaan Perkebunan Negara Gula) which oversees Indonesia’s sugar mills, has made few efforts to build new sugar mills and replace the outdated ones. Cane crushing is a seasonal activity that starts in May or June and lasts until September or October, but only a small number of mills were in operation for the entire season. As a result, this had a detrimental influence on the quality and quantity of sugar production and the market’s efficiency (Mubyarto, 1969).

In terms of efficiency, Indonesian sugar industries have gradually risen to 21–30th place among the world’s top 62 sugar producer countries, with production costs ranging from 288 USD to 310 USD per ton. Despite this, Indonesia’s total number of sugar mills remained at 64 in 2005, down from 182 units in 1930. Due to inadequate management and a lack of raw material (sugarcane) from sugarcane growers, the majority of sugar mills were closed (Yustika, 2005).

Regarding sugar marketing and pricing management, Indonesia had been hampered by the lack of a comprehensive system and institution to properly manage the export process. Various entities promised to handle the marketing and pricing issues, but they were not as successful as they had been before nationalization. NIVAS, the first collective sugar marketing body, was founded in 1931 to preserve foreign markets during the global economic downturn. NIVAS’s other responsibilities included overseeing the collection of sugar tariffs and managing local consumption to keep export levels. During the 1960s and early 1970s, government processing procedures, as well as production regulations, underwent significant change. In the early 1970s, the Ministry of Agriculture, Bank Bumi Daya, and BULOG (the National Logistics Agency) were the government institutions in charge of processing and marketing (Nelson & Panggabean, 1991).

In general, four policy tools have a direct impact on Indonesia’s sugar industry. First, similar to many Least Developing Countries (LDC), sugar is typically significantly more expensive for both producers and consumers. Second, the government has forced some farmers in Java to plant sugarcane despite the exorbitant cost of doing so. Java’s land is suited for cultivating rice, and other food crops due to its distinct physical properties. Third, subsidies are provided for chemical inputs such as fertilizers. Finally, the majority of cane farmers get a sizable credit subsidy.

5. Conclusion

Sugar cane plantation agriculture grew as a result of colonialism, which began to take hold in the early 19th century with the influence of the Dutch East Indian Company. Around 1830, the Dutch colonists transformed the value of sugar in the Netherlands Indies by introducing the cultivation system (cultural system), which was so successful that it became the cornerstone of the Dutch’s prosperity. The demand that farmers give land and labour in order to raise export crops was the main element of the cultivation system. Production decisions were determined by the colonialists and their employees. The Agrarian Act, which formalized the practice of long-term land leases for the cultivation of crops for export, and the sugar act, which eliminated sugar from the cultivation system, were both passed by the Dutch parliament in 1870.

Excellent manufacturing efficiency caused the Java economy to flourish remarkably. This took place during the colonial expansion between 1870 and 1914, which was characterized by liberal and progressively “developmental” policies. Up to the interwar period, Java’s sugar industry overtook Cuba as the second-largest producer and exporter of sugar. Its economy became even more vibrant during this time as a result of the revival of peasant agriculture, irrigation, the construction of transportation infrastructure, the expansion of trade, and the growth of governmental services.

In the Netherlands Indies, large-scale fertilizer applications, irrigation, and the use of high-yield cultivators were all used to produce high yields. Java’s other accomplishment was to modernize plantation agriculture. Through the research centres, numerous cane varieties were found. Countries that produced sugar cane around the world have also received these effective bred types for productivity and disease resistance. However, industrial sugar production, manufacturing, and marketing were greatly diminished in the early 1930s as a result of the effects the interwar depression had on the entire world. As a result of both internal and external issues, such as fierce market competition and the impact of the global sugar agreement, Java, the second-largest exporter of cane sugar, experienced a rapid drop from top possession in the sugar economy during World War II. The production and sale of sugar were exhausted due to the shutdown of Indonesian sugar industries during the Japanese occupation (1942–1945). Most sugar estates were turned into enterprises that produced food and supplied supplies during the war. The sugar industry suffered losses as a result of Indonesia’s subsequent national revolution (1945–49). Young Indonesians and the army set several of the mills on fire during the early years of their country’s independence as part of their scorched-earth campaign against the Dutch.

During the post-revolutionary era, Indonesia experienced the worst scenario. When the Republic of Indonesia confiscated Dutch (foreign) capital or nationalized Java’s sugar industries, the unrest peaked in the late 1950s. After nationalization, the government had to overcome financial and skilled workforce issues in order to rebuild and restore the sugar industries and the nation. Policy and institutional issues connected to ineffective policy execution, an antiquated organizational structure, and an outdated management system for sugar companies and the new government had an impact on the Indonesian sugar industry. The world’s second-largest producer and exporter of sugar had fallen rapidly as a result of these all-important factors, and it had soon begun to rank among the top importers of sugar.

Additional information

Funding

The author received no funding for this research

Notes on contributors

Dagm Alemayehu Tegegn

Dagm Alemayehu Tegegn is a Ph.D. student in the College of Liberal Arts, Department of History at National Cheng Kung University in Taiwan. He received his master’s degree from Jimma University Ethiopia. He was an academic staff of Bule Hora University, Ethiopia.

Frank Dhont

Frank Dhont is an Associate Professor in the Department of History of National Cheng Kung University, Taiwan. He specializes in Southeast Asian history and particularly in insular Southeast Asia. His research focus is on the struggle of the Indonesians against Dutch colonialism from the early age of European colonialism extending to the 20th century and Indonesian independence. He is particularly interested in the Japanese occupation of Indonesia and Southeast Asia, the socio-political changes this brought about in society especially for ordinary people and the memory of World War II in the region.

Notes

1. The 1884 commercial crisis occurred when global sugar supply was raised to such an extent that the price of sugar on the free export market abruptly dropped. Prices in Java have dropped below current production costs. The average world export price nearly halved between 1882 and 1884, owing largely to the expansion of the sugar beet industries in Europe and the USA (see Wiseman, 2001, p. 35).

2. The factory system was a new manner of producing goods that emerged during the Industrial Revolution. To mass-produce goods, the factory system included powered machinery, division of labour, unskilled labour, and a centralised workplace. Changes in technology in the Java sugarcane sector frequently brought about changes in the organisation of land use, labour, and settlement patterns. The centre factories were outfitted with mechanical centrifuges for separating sugar from masseuse-condensed, boiling cane juice-and produced “centrifugal sugar” for international sale (see Galloway, 2005, p. 4; Walker, 1993, pp. 187–188).

3. Markets were disrupted and shipping capacity was constrained at the close of World War I, resulting in more sugar being hoarded across Java. Sugar prices fell to their lowest levels in years as a result. The 1918 influenza outbreak caused considerable mortality, particularly in the months of October to December 1918, but continued in the first months of 1919 over Java, particularly in Eastern Java. While the mortality shock generated temporary labour shortages and affected production operations in a variety of agricultural industrie(see Gallardo-Albarrán & de Zwart, 2021, pp. 1–10,18).

4. The word indonesianisasi refers to the elimination of Dutch tutelage and the ensuing structural change of Indonesia’s economy during decolonization and the years immediately following Dutch recognition of Indonesian independence in December 1949. This word was initially applied in a very specific way, referring to the substitution of Dutch officials and managers in the Indonesian government bureaucracy and private firms in the years preceding the nationalization of remaining Dutch business assets in Indonesia in December 1957. There is increasing consensus that the phrase should be used more broadly to refer to the shift of economic leadership in newly independent Indonesia, which has far-reaching implications for future economic development (see Lindblad, 2002, p. 55)